John Malone's LINTA Spin

Barry Diller, the boss of IAC/InterActive Corp., and Liberty Media's John Malone are ending their long partnership and divvying up their assets -- and it looks Diller is getting the house.

In the breakup announced yesterday, Diller walked away with majority control of IAC, a Web conglomerate that houses dating service Match.com and search engine Ask.com, in exchange for a some relatively painless concessions.

Malone agreed to give up 12.8 million IAC shares and his 60 percent voting stake in the company. In exchange, Diller's IAC will hand over $220 million in cash and two Web properties, Evite and Gifts.com.

Splitsville: Media moduls Barry Diller (pictured) and John Malone are doing deals to go their seperate ways, with Diller stepping down as CEO of IAC Interactive Corp. Diller will also step down as IAC's CEO, although he will remain chairman with the opportunity to increase his stake. Match.com chief Greg Blatt will assume the CEO title at IAC.

In a statement, Diller described Liberty's exit from IAC as a "turning point." The two have had shared corporate interests for the past 17 years and -- with the exception of Expedia and a few other assets no longer part of IAC -- their interests are now separate.

In referencing a 2008 falling out with Malone over control of some assets that were spun out, Diller said that the two had had a successful partnership but for "one brief period of mutual discontent which we both believe was an aberration."

Oppenheimer & Co. Internet analyst Jason Helfstein said the deal is positive for Diller, in particular when considering Malone's reputation as a shrewd adversary.

"There are very few individuals on the planet who can say they walked away with a good deal from Liberty Media," Helfstein said.

Wall Street sent IAC's stock up 2 percent to close at $29.35.

Under the deal, Diller exchanged 4.3 million IAC shares for 4.3 million super-voting Class B shares of IAC held by Liberty. The deal gives Diller 34 percent of IAC and the chance to boost his stake to 41 percent if he exercises his right to swap 1.5 million common shares for more Class B stock.

The deal is also an indication of Malone's plans for Liberty Interactive Group, which will house Evite and Gifts.com along with Liberty Media's interests in digital properties such as Expedia and QVC. Despite having a separately traded stock with the ticker "LINTA," the business is not a separate company -- yet.

"This is definitely a positive for Malone," said one source. "He wants to move on and he's cleaning up to spin out LINTA."

Diller's decision to relinquish the CEO role could also free him to seek out content assets -- something he wasn't able to do within the confines of IAC. "There just isn't a way to spend a billion dollars on content, and do it in any meaningful way in this company," Oppenheimer's Helfstein said. catkinson@nypost.com

"I mean we have an excess of cash and we have to figure out what is clever to do with that. And having an unshielded income stream over the long term, unshielded by debt, or other tax advantages, is probably not an attractive scenario."

Liberty Capital (LCAPA) shares are getting a boost today from Citigroup analyst Jason Bazinet, who this morning raised his rating on the company to Buy from Hold, with a new target of $54, up from $46. The analyst says the higher rating and target reflect an updated sum-of-the-parts analysis of the company.

Actually, Bazinet spends much of his note assessing what the company is likely to do with its 40% stake in Sirius XM (SIRI). He notes that the current position increases the complexity of the company but does not allow it to tap into the substantial Sirius net operating loss carryforwards.

Bazinet notes that three factors limits the company’s choices. For starters, the company has agreed to a 50% ownership limitation through March 2011. Meanwhile, tax rules limit the use of the Sirius NOLs through March 2012. And finally, he notes that Liberty would have to boost its stake in Sirius to 80% ownership within 6 months of reaching 50% in order to use the NOLs.

He sees three scenarios for what could happen here:

Liberty could tender for 100% of Sirius between March 2011 and March 2012.
Liberty could double its stake to 80% after March 2012.
Liberty could spin its Sirius stake and then merge with Sirius via a maneuver called a Reverse Morris Trust after March 2012.

He thinks a 100% tender is “very unlikely.” He thinks moving the stake to 80%after March 2012 is most likely if Sirius’ equity value remains subdued; he thinks a spin-and-merger after March 2012 is most likely if there is significant appreciation of Sirius shares.

"Liberty Media’s 40% stake in Sirius XM is currently represented in its Liberty Capital LCAPA tracking stock. Last month, Liberty announced a plan to separate its Liberty Starz and Liberty Capital tracking stock groups from its Liberty Interactive tracking stock group. If Liberty’s plan gains approval, Liberty Capital and Liberty Starz would then become apart of an asset-backed company called “Newco.” The newly formed Newco would be represented by two separate tracking stocks, Newco Starz and Newco Capital. Meanwhile, Liberty Interactive (LINTA) would then become asset based. In light of Liberty’s decision to not do a hard spin of LCAPA, LSTZA and LINTA, Bazinet’s analysis focuses on how Liberty may create increased shareholder value over the next couple of years.

What does Bazinet see as the most likely scenarios? He sees Overture Films, which is currently part of Starz Media and represented by Liberty Capital, being shuttered or sold. He then sees the remaining Starz Media assets, in exchange for cash, being re-attributed to Liberty Starz. In order to lessen or remove the tracking stock discount, he expects Newco Starz to “ultimately be spun out as an asset backed security.” Bazinet then sees the newly created Newco Capital either entering into a tax sharing agreement with the newly created Newco Starz, or entering into a RMT (Reverse Morris Trust) transaction with Sirius XM."